Young VC partners are learning to think small in a big way

Chip Hazard says he’ll take advice any day of the week from his famous former boss, Henry McCance of Greylock Partners. But he hasn’t looked back, he says, since parting ways with the venerable venture firm last May. Hazard and his partner, Michael Greeley, are part of an emerging generation of venture capitalists starting firms in the wake of the technology shakeout. And they’re in a remarkably upbeat mood, compared with so many of their elders in the field.

By Beth Healy, Boston Globe Staff

They’re running $100 million out of a Back Bay office for IDG Ventures, whose sole investor is International Data Group founder and chairman Patrick McGovern. They’ve done two deals since Greeley quit Polaris Venture Partners in September 2001 to kick off the local venture effort, and McGovern is eager for them to do more. They’re meeting with 35 to 40 start-ups a week, they don’t have the burden of a portfolio full of dogs, and best of all, they’re running their own show.

”We think we’re an appropriately sized and geared effort,” Hazard says. ”We’re not so big we’re trying to shovel money down entrepreneurs’ throats. And we’re not so big that we move slowly and get caught up in our own inertia.”

No regrets here about leaving Greylock’s $1 billion fund or Polaris’s $900 million portfolio. It’s stylish — and comfortable — to be managing a small fund these days. Greeley says the goal is to invest the $100 million in about a dozen companies over the next two to three years.

And the group has the luxury of answering to just one investor, albeit one with high standards and a daunting entrepreneurial track record of his own. McGovern started Boston-based IDG in 1964 on a few thousand bucks raised from selling his car and borrowing cash from his sister, and created a high-tech media empire that includes titles from PC World to Biotech Sweden and more than 150 annual industry events like Macworld. IDG employs 13,000 people in 85 countries.

Two weeks on the job, Greeley says, McGovern marched into his office and asked when the first deal would be inked. After all, he had long had a staff making venture investments in China, San Francisco, and London. With the addition of the Boston fund, he has put a total of $600 million in venture capital on the table. Greeley said he’d jump on the case, promising to make four investments by the end of 2002. But his group inked just two deals in the hairiest year on record for venture investing. ”He was very disappointed,” Greeley confesses.

Better a restless limited partner than a reluctant one, especially when his office is right in the corner, just steps away. McGovern spends about 10 days a month in the firm’s Boylston Street headquarters. A black-haired mannequin, in suit and tie, sits in a chair facing his desk — a willing audience when McGovern wants to practice speeches, colleagues say. A telescope near the window is aimed across the river at MIT, McGovern’s alma mater. He’s a man who’s lived through a few recessions before, Greeley says. For venture capital, Greeley says, ”his appetite is absolutely unwavering.”

That’s an enviable situation, given that so many venture capitalists are facing pressure from investors to slash giant funds and the lavish fees that often accompany them.

Greeley’s biggest gripe is that he just turned 40, but no one feels too bad for a guy who’s hearty enough to train for the Boston Marathon through this punishing winter. Hazard is 35, and a third partner they just hired, entrepreneur Jeffrey Bussgang, is 33.

Both pleased and slightly self-conscious about their lack of gray hair, the partners point out that they were on the front lines of the market’s boom and crash, and that they bear the scars of the lessons learned there.

Hazard experienced the squeeze that hit younger partners as VC firms began to adjust to lower deal volumes; seeing a partner leave Greylock was both unprecedented and shocking in the industry at the time.

Bussgang, who cofounded Upromise, a kind of frequent-flier program for college savings, and worked previously for the software firm Open Market, witnessed the highs and lows of raising mountains of venture capital — more than $100 million at each company.

Greeley, having done his time on Wall Street and with three private equity firms, claims to have been bitten by the same bug that drove his old bosses, Jon Flint and Terry McGuire, to start Polaris in 1996.

While loathe to disparage their former firms, it’s clear that the IDG partners, Harvard MBAs all, are embracing their new, lean culture. Making investment decisions locally is key, they say, having experienced the ordeal of getting partners at bicoastal firms together to pull the money trigger.

Says Hazard: ”At big firms, getting an investment decision done was a multi-week, multi-month process. Just scheduling the meeting was a problem.”

Hazard made money for Greylock on such deals as Narrative Communications, which was acquired by @Home and the Vincam Group, which was purchased by ADP. On the losing side of the ledger, he backed Send.com, which raised more than $50 million from a group that included Greylock and then shut down. He plans to continue focusing on software investments.

The IDG partners are clearly planning to stay friends with their former colleagues. Two Polaris partners are on the fund’s board, and one of the firm’s two deals so far was seeded by Polaris: MicroChips, a Cambridge developer of implantable chips for drug delivery. The other investment is mValent, a Tewksbury software company.

Like other VCs, the group is heartened to see more serious entrepreneurs shopping deals than during the bubble. They’re looking for companies that will use IDG’s capital wisely, and companies that are realistic about their product and the demand for it. Hazard’s tip to start-ups is this: ”Get your first 10 customers and get them to pay you.”

Greeley thinks the firm’s brand is attractive to entrepreneurs and sells its connections to the IDG readership and customer base as a competitive edge. He can invite an entrepreneur to speak, for example, at a meeting for 100 chief information officers. He can introduce start-ups to the firm’s technology analysts at International Data Corp. (He insists there will be no pressure on analysts to write favorable reports on the companies, but skeptics beware.)

”With entrepreneurs, I think it resonates,” Greeley says of the IDG Ventures pitch. But other VCs are more wary.

”With the venture guys,” he admits, ”it’s still a process.”

Beth Healy can be reached at [email protected].

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